U.S. seeks alternate satellite terminal bids

WASHINGTON Fri May 11, 2012 9:54pm EDT

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WASHINGTON (Reuters) - The U.S. Air Force said on Friday it is still in talks with Boeing Co about revamping a multibillion-dollar program for next-generation satellite communications terminals, but has now formally invited other companies to submit alternate bids.

The move is part of a drive by Air Force officials to crack down on cost increases that have plagued satellite programs for over a decade. It puts additional pressure on Boeing to finish development of the program or risk losing it to another bidder.

The Pentagon's acting chief weapons buyer, Frank Kendall, last month signed a memorandum that authorized the Air Force to convert its current contract with Boeing for the Family of Advanced Beyond-line-of-sight Terminal (FAB-T) program to fixed-price terms, and invite bids from other companies.

"It is the Air Force's intent to find the best possible cost solution in the FAB-T program, either through a new contract or by converting the current FAB-T contract from a cost-plus to a fixed price structure," said Air Force spokeswoman Major Tracy Bunko. "Negotiations with Boeing on the current contract are ongoing while we continue to look at other provider options."

The Air Force on April 25 released a final request for proposals seeking an alternate source for development of the satellite terminals, which are needed to handle the most important and sensitive communications, including those transmitted by the new Advanced Extremely High Frequency satellites built by Lockheed Martin Corp.

Bids are due by June 8, with the Air Force expected to award a contract in September.

Boeing said it was working with the Air Force to transition the FAB-T contract to a firm, fixed-price structure.

"We are continuing to execute on the FAB-T program of record and look forward to completing the development of the FAB-T system," said spokesman Matthew Billingsley. Boeing shares closed 0.3 percent lower at $73.56 on Friday.

RAYTHEON PLANS BID FOR ALTERNATE PROGRAM

Raytheon Co, which unsuccessfully bid for the FAB-T contract won by Boeing, said it supported the Air Force's decision to move forward with an alternate source for the satellite terminals and looking forward to submitting a bid.

Raytheon has produced and tested other terminals that can operate with the AEHF satellites.

"We are the only provider of AEHF terminals that are in production for the Army, Navy and Air Force, and look forward to the opportunity to bid on the FAB-T alternate program," said to Scott Whatmough, Raytheon vice president.

The Air Force nearly terminated Boeing's FAB-T program in January, but decided to hold off after the company proposed fixed-price terms with a "not-to-exceed" ceiling.

Boeing won a $235 million deal to develop the new terminals in September 2002, but the program's cost has ballooned to $1.6 billion, not including production, according to recent Air Force estimates.

The Air Force's fiscal 2013 budget proposal asked for $107.5 million to continue work on the FAB-T program, less than half the 2012 sum of $231.2 million.

In February, Major General John Hyten told reporters that the Air Force would proceed with the alternate source program regardless of how the talks with Boeing turned out.

A March report by the Government Accountability Office, a congressional watchdog, cited ongoing problems with the FAB-T program, noting that Pentagon officials now believed it would not be completed until 2017, three years after military plans to start using the AEHF satellites the new terminals are being developed for.

The Air Force is examining overhead costs at its suppliers, and revamping acquisition plans for many of its major programs as the Pentagon begins implementing $487 billion in cuts to proposed defense spending over the next decade.

(Reporting By Andrea Shalal-Esa; Editing by Matthew Lewis, Gary Hill)

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